modelling pillar ii in capri wolfgang britz institute for food and resource economics, university...
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Modelling Pillar II in CAPRI
Wolfgang BritzInstitute for Food and Resource Economics, University Bonn
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Content
Data General approach Implementation Running a scenario Result analysis
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Underlying data
Assembled by team of Janet Dwyer, from DG-AGRI sources, huge investment especially ex-post
Different definitions:• Planned spend planned allocation of budget to different measures• Actual spend
Spenders (“matching funds”, co-financing with fixed shares depending on region and measure)• EU budget• National co-financing• Private (e.g. in case of investment aid)
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Underlying data
Data on € spend on certain measures by year and NUTS2
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Underlying data
Data now in GDX after final cleansing by Torbjoern:
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
General idea
Existing data only provide a very rough idea how the money was spent Impossible (at least for us) to get detailed information how the measures are
exactly implemented in the different MS and regions CGEs are rather aggregated (only one agricultural sector), detailed modeling
is thus not possible=> Develop a list of “shocks” which can be seen as archetypical for Pillar II
interventions:
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
General idea
Janet, Ben Allen, Peter, Kazia and other have assigned the RD measures to these shocks (http://www.ilr.uni-bonn.de/agpo/rsrch/capri-rd/docs/d3.1.2.pdf)
….
Shocks will change parameters in the model: behavioral parameters of government or parameters in the production
function tax rates
Size of shock is proportional to the money spent and relative to what is shocked (e.g. amount of land subsidies related to return to land)
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Human capital agriculture
Good example for the overall logic:1. Where does the money end?
2. What is the effect of spending the money?
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Human capital rest
Exercise:• Make a small flow chart showing how that type of shock affects the
different elements of the CGE Similar:
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Investment in agriculture
Increase capital stock in agriculture …. and assume that new capital is more productive …
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Human capital rest
Exercise:• As before: make a small flow chart showing how that type of shock
affects the different elements of the CGE
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Increase gov demand for construction
… and the implementation of the shock
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Land subsidies for agriculture
And the shock implementation
Note: these measures are modeled in CAPMOD, so if the PE_LINK is used,no shock in CGE …
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Land subsidies for agriculture
But the story is more complex …. If the shocks becomes to large, the model might freak out …
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Land subsidies for forestry
Shock implementation is identical to agriculture
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Subsidies to service sector
Straightforward: reduction of production taxes …
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Downstream subsidies
and/or decrease tax rate
Plus some vintage effect (more productive new capital)
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Capital subsidies agriculture and forestry
Same story as for downstream industries:• Part expands capital stocks• Remaining part subsidizes investments• Vintage effects
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Income subsidies
Effect not clear … and only one household type
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Shock logic
Beware, normally, in a CGE, there are only two ways to make society better off• Technical progress => produce more from given endowments• Remove distortions which reduce allocational inefficiencies
Our shock logic links certain government actions (= which require taxes to be financed and thus are distortive) directly to a TFP change depending on the size of the TFP multiplier, government intervention can be beneficial => some leeway for wishful thinking, welfare analysis can be dubious
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Reporting and shock logic
The SAM does already comprise the measures ….• e.g.: land taxes / subsidies for agriculture as reported in the SAM
comprise the single farm payment, LFA, land taxes …• That is different from the CAPMOD logic where we define all the
premiums That means for the CGE, a no change in policy means no shock … and we
simulate the effect of Pillar II by removing it …
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Running a scenario
An existing scenario Selection of MS
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Running a scenario
Definition of the baseline of CAPRI used
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Running a scenario
Closure rules and other settings
Britz: CAP post 2013 – Quantitative Analysis with CAPRI
Own analysis
Run for DK:• cge_no_shock (= baseline calibration shock)• Cge_rd_minus100 (= remove pillar II)
Load the results in the interface Report the key changes in policies (budget, main measures) What happens to the agriculture sector (factor use, output, price)? Welfare analysis